Insurers warn innovative selling hard to swallow

A TandemFinancial Advice risk adviser has discovered a way of obtaining insurance cover worth millions of dollars on behalf of clients without ever sending them off for a medical.

However, while Guy Mankey’s approach is perfectly legal, there are fears that this practise could lead to an increase in premiums across all types of cover.

The PAX Financial Group director’s approach to selling risk insurance is to offer all clients that need high levels of cover the option to purchase the full cover through one insurer provided medical requirements are met, or purchase a number of smaller policies through different insurers.

He does this so that his clients can choose to avoid medical tests, which he claims have the potential to prejudice their access to the level of cover they need.

When splitting business between different insurers, Mankey ensures each insurer knows of the arrangement by providing full disclosure of all applications.

“I am not prepared to gamble that my clients won’t have an unknown health problem which might affect their ability to purchase adequate cover,” Mankey said.

“I always explain that if you go down the medical route it will be a little bit cheaper, but we’re taking a punt, and you have to go through the discomfort of all the testing.

“What I do is point out to clients that mandatory medical testing only benefits one party, and that’s the insurance company.”

However, he admits to being met with some scepticism from parts of the industry.

Tower chief executive of retail life David Callander told Money Management that if Mankey’s practise was to become widespread in the industry he believed it could lead to an increase in premiums.

“When [insurers] structure our pricing models we understand the level of risk we are taking on for different types of clients, and the reason we ask for people to go through medical tests is to make sure we can accurately price the risk that they are in terms of a client,” he said.

“So what this would mean is that a number of clients would go under the radar in terms of that pricing model … and in the end, we need to balance that because it’s likely our claims costs would increase further down the track and, therefore, we would have to make an adjustment to that, which means prices would go up.”

Financial Planning Association life risk committee chairman Geoff Rimmer believes that provided full disclosure of the practise was given to each insurer involved, it was difficult to argue against the approach; however, he would be concerned if advisers were implementing it in his own dealer group, Financial Services Partners.

“I would discourage it as a practise in our business, because if somebody is unfortunate enough to need the cover because they have had a claim, the less ambiguity you can have in the event of a claim the better,” he said.